Take note of these four impeding regulations or risk falling behind says Zero Support managing partner Phil Young.

Phil Young: Four regulatory changes IFAs should be up to speed with

If you are about to head to the printers for a big run of glossy new client agreements, you might want to think twice. A number of legislative and regulatory changes are due to be implemented that might force you to alter them a few times over the next six months.

There are four issues that consistently come up for discussion on boards I sit on.

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Mifid II

Although platforms and discretionary fund managers will bear much of the burden, Mifid II will bring in a number of changes for advisers. These European regulations come into force from 3 January 2018 so time is short. For example, the definition of independence is subtly changing. Those firms that previously went restricted because they did not want to advise on products, such as venture capital trusts and enterprise investment schemes, could opt to become independent again.

Mifid II is perfect for pedants. Even if it does not affect you directly, it is worth understanding the new rules before criticising journalists for getting it wrong. I guarantee it will involve changes to your disclosure documents.

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General Data Protection Regulations

Another EU missive, arriving in May 2018. After a bumper fourth quarter this year working on Mifid II, lawyers and consultants will comfortably hit next year’s target courtesy of these regulations. The aims are noble, protecting privacy and stopping global corporates from abusing data, but no firm escapes regardless of size or sector.

In addition to stiffening up a few processes around electronic data storage and emails, expect a raft of paperwork from providers and platforms for re-signature and revised data protection clauses for your client agreements. I guarantee it will involve changes to disclosure documents, again.

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The end of trail commission

This seems to come up every couple of years and quietly disappear. Once again, it has been mooted that legacy trail commission could be switched off, this time as a result of the Financial Conduct Authority’s asset management study. All you can do at this stage is work out how much you are exposed to and what you can do about it. You may need to revise next year’s projected revenues and profits should trail cease.

If you have no idea which clients the trail is coming from, you can assume it will just stop and write it off. If you know who they are but have not been servicing the clients since the retail distribution review, you can also write it off. If you service the clients with an adviser charge but use the trail to offset against what the client would normally pay, you will need to have a conversation with the client but could increase their fee to compensate for the loss of the trail.

Nobody knows how this would work in practice or whether the lost trail money would go into reduced charges or providers’ back pockets, but if you carry out this exercise now you can dust it off in another two years when it comes up again for consultation.

Leave a comment!

Criminal Finances Act

This one seems to have passed most people by. It comes in at the end of September 2017 and makes businesses accountable for any failure to prevent tax evasion by a member of their staff, even if they were not aware of it. This makes business owners and directors responsible for preventing their staff, external agents and consultants from committing tax evasion.

To avoid liability, you should refresh staff training on financial crime, review relevant processes and issue a policy and guidance to staff on the subject.

Leave a comment!

If you are about to head to the printers for a big run of glossy new client agreements, you might want to think twice. A number of legislative and regulatory changes are due to be implemented that might force you to alter them a few times over the next six months.

There are four issues that consistently come up for discussion on boards I sit on.

If you are about to head to the printers for a big run of glossy new client agreements, you might want to think twice. A number of legislative and regulatory changes are due to be implemented that might force you to alter them a few times over the next six months.

There are four issues that consistently come up for discussion on boards I sit on.

Mifid II

Although platforms and discretionary fund managers will bear much of the burden, Mifid II will bring in a number of changes for advisers. These European regulations come into force from 3 January 2018 so time is short. For example, the definition of independence is subtly changing. Those firms that previously went restricted because they did not want to advise on products, such as venture capital trusts and enterprise investment schemes, could opt to become independent again.

Mifid II is perfect for pedants. Even if it does not affect you directly, it is worth understanding the new rules before criticising journalists for getting it wrong. I guarantee it will involve changes to your disclosure documents.

General Data Protection Regulations

Another EU missive, arriving in May 2018. After a bumper fourth quarter this year working on Mifid II, lawyers and consultants will comfortably hit next year’s target courtesy of these regulations. The aims are noble, protecting privacy and stopping global corporates from abusing data, but no firm escapes regardless of size or sector.

In addition to stiffening up a few processes around electronic data storage and emails, expect a raft of paperwork from providers and platforms for re-signature and revised data protection clauses for your client agreements. I guarantee it will involve changes to disclosure documents, again.

The end of trail commission

This seems to come up every couple of years and quietly disappear. Once again, it has been mooted that legacy trail commission could be switched off, this time as a result of the Financial Conduct Authority’s asset management study. All you can do at this stage is work out how much you are exposed to and what you can do about it. You may need to revise next year’s projected revenues and profits should trail cease.

If you have no idea which clients the trail is coming from, you can assume it will just stop and write it off. If you know who they are but have not been servicing the clients since the retail distribution review, you can also write it off. If you service the clients with an adviser charge but use the trail to offset against what the client would normally pay, you will need to have a conversation with the client but could increase their fee to compensate for the loss of the trail.

Nobody knows how this would work in practice or whether the lost trail money would go into reduced charges or providers’ back pockets, but if you carry out this exercise now you can dust it off in another two years when it comes up again for consultation.

Criminal Finances Act

This one seems to have passed most people by. It comes in at the end of September 2017 and makes businesses accountable for any failure to prevent tax evasion by a member of their staff, even if they were not aware of it. This makes business owners and directors responsible for preventing their staff, external agents and consultants from committing tax evasion.

To avoid liability, you should refresh staff training on financial crime, review relevant processes and issue a policy and guidance to staff on the subject.

Warren Shute is committed to providing clients with a financial education at Lexington Wealth Management. The author, master’s student and master practitioner in neurolinguistics is also on a mission to be the best he can be

Chris Sier, the chairman of the Financial Conduct Authority’s (FCA) institutional disclosure working group (IDWG), has apologised to the Investment Association (IA) for a perceived slur on the trade body in a newspaper interview.

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